Brexit-proofing the UK legal sector

Ned Beale considers whether leaving the EU will discourage parties from choosing English law and jurisdiction for their contracts, and how the UK can protect its position as a global legal hub

The rule of law is a UK export success story. The UK legal sector is worth £25bn, employs 370,000 people, and is a £3.7bn net exporter. Businesses worldwide choose English law and the jurisdiction of the English courts for their investments and deals. The government has supported this, for example by investing in the state-of-the-art Rolls Building to promote the UK an international legal centre.

Brexit may affect this because the legislation that regulates the civil justice systems of the EU states, through the Brussels I Regulation (Recast), will no longer apply to the UK. This would sever the UK and EU justice systems. If no alternative arrangements are put in place, then the UK will need to rely on its pre-Brussels treaties with the other member states and the discretion of those states' national courts.

As regards service of UK claims, the UK and many EU member states are party to the Hague Service Convention 1965, which provides for the reciprocal service of court proceedings. This is not as streamlined a process as under the EU Service Directive, but nevertheless usually enables service of proceedings in months, rather than the years it can sometimes take to serve proceedings in a state outside the Service Convention.

UK jurisdiction clauses would not be covered by any existing treaty. It is reasonable to assume that courts in EU member states would continue to recognise UK jurisdiction clauses if the UK was outside the EU. However, the automatic stay of proceedings in one member state where a contract contains an exclusive jurisdiction clause in favour of another conferred by the Brussels Recast would no longer apply. There would therefore be an additional risk of delay caused by parallel proceedings elsewhere in Europe, the so-called 'Italian torpedo'.

Enforcement of UK judgments would also be outside any treaty, and require a UK judgment creditor to commence a fresh legal action on the judgment in an EU state in which enforcement was sought. This is not necessarily onerous. The UK has no such treaty with the US and relying on common law enforcement appears not to cause significant issues. However, the EU is a more diverse legal jurisdiction than the US, and creditors looking to enforce in the EU will lack the reassurance currently provided by the Brussels Regulation.

This could cause issues for those involved in EU litigation, and could even discourage parties outside the UK from choosing English law and jurisdiction for their contracts.

What can be done? The UK could negotiate to remain within the Brussels Regulation. However, as with access to the single market, the EU may resist the UK retaining EU benefits without membership. An alternative could be to negotiate to join the Lugano Convention, which extends the Brussels regime to the European Free Trade Association (EFTA) states: Norway, Switzerland, and Iceland. However, it also provides for countries outside the EFTA to apply to join, and so may be an option even if the UK does not join the EFTA.

Further alternatives are to negotiate bilateral treaties with the different EU states or a collective treaty with the EU. The UK's ratification of the Hague Convention on Choice of Court Agreements, which the EU has already ratified, will also provide a degree of protection.

It is fair to say that the referendum does not change things overnight. The time before article 50 is triggered and the two-year period thereafter give a space for a transition from the Brussels regime to whatever will follow. Many of the UK's strengths as a legal hub will remain, especially for international arbitration which is outside the Brussels regime.

Nevertheless, the UK's legal sector exists in a competitive international marketplace. In this author's view, what the Ministry of Justice ought now to be doing is decoupling this process from politics and reaching out to the European Commission to hold a sensible engagement on how the UK can join the Brussels, Lugano, or similar arrangements quickly and seamlessly upon Brexit occurring.

Ned Beale is a partner in the commercial litigation team at Trowers & Hamlins @Trowers